Evaluating your Business’s Financial Health includes being able to see your business grow positively. It is always essential for any new venture to sustain itself through time and through various changes that may come along the way. For example, if the costs of your business increase substantially, it would be bad for your business. However, if the prices decrease, it could also be good for you as long as the costs are not high and do not take over the profit margin your business is built off.
In assessing the health of your small business, you must first take into consideration several key factors. One of the most important factors to consider is cash flow. While it is a given that you need to have a steady cash flow to sustain your business and keep it viable, you must also consider how this cash is being used and if it is being wisely spent. Cash flow issues can become problematic for a small business when they become out of control and put your financial health at risk.
A second important factor to consider is profit margins. Keeping a healthy margin for your business will offer higher prices to your customers and generate more sales. A higher margin will also allow you to invest more in your business, offering you a higher return on investment. However, you must also remember that a high-profit margin also means a high debt to revenue ratio. The higher your debt to revenue ratio is, the greater risk you assume when turning a profit.
A third important factor to consider is the overall health of your business. This includes looking at the cash flow problems you are having and looking at the profit margin and debt to revenue ratios. Poor health can also indicate a business is overextended and may require significant capital infusions or other big-money investments. Also, a poorly performing company may be missing key components that can make its products and services more accessible to customers. Suppose you have difficulty defining whether or not your business is running efficiently or effectively. In that case, it may be time to examine whether you are appropriately managing your resources and your financial health.
Learn more about managing your small business and how free accounting software for small business and the best bookkeeping app can help you as you read further from the infographic we have from Kippin.